US Treasury proposes global financial reforms

Nov 16, 1998 01:00 AM

Oct. 5, 1998 US Treasury Secretary Robert Rubin has outlined 4 market-oriented proposals, including better oversight of global capital flows, to deal with the crisis rocking financial markets around the world.
Rubin told an audience of Wall Street bankers and analysts that global markets needed "new openness in international finance" and "more soundly based capital flows."
Rubin also cited the need for stronger national financial systems with better oversight of foreign investments in emerging markets. He added that "finally, responses to crises must include appropriate private-sector involvement and new financing mechanisms to combat contagion."
The Treasury chief also reiterated the importance of "reforms of the IMF and the other international financial institutions" and said the Group of 7 major industrial nations needed "to promote sound policies and growth" and "help build the foundations of private sector-based economies in developing countries."
"As I have already mentioned, the IMF itself also needs to be more transparent," Rubin said.
Stressing that "industrialised nations, both individually and as a group ... have significant responsibilities," Rubin called on G7 nations to "act to maintain stability and growth in our economies as a source of strength for the rest of the world."
The finance ministers and central bankers of the G7 nations are convening in Washington.
The IMF/World Bank meeting will be held soon, and market speculation is building up about measures that may come out of either meeting to help pull global financial markets out of the danger-zones.

One speculation is that the G7 may support some form of short-term capital controls in emerging markets. Another is that other industrial nations may lower their short-term interest rates in the wake of the Federal Reserve's slight easing of US monetary policy by trimming the US federal funds rate.
"Appropriate regulation of capital markets is one thing, wholesale distortions of them is quite another," said Rubin, a former partner at Goldman, Sachs and Co., while commenting on broad capital controls.
Once again, Rubin stressed that Japan, the world's second-largest economy, needed to "urgently implement strong, effective measures" that are essential "for its own benefit but also for recovery from the global crisis."
Rubin further urged emerging market economies to "also do their part ... pursue sound macroeconomic policies and implement the reforms necessary to regain stability and growth."
Rubin said the "herd mentality" that in recent years led to a rush into financial assets was now working in the other direction and accounted for an excessive sell-off in many classes of financial assets. "There was a herd mentality on the way in ... I believe there was a herd mentality with respect to the withdrawal of capital not only from emerging markets but from many asset classes," Rubin said.
Stock markets around the world broadly sold off amid fears of financing crunch leading to a global financial meltdown.

Source: not available
Market Research

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